AEB 3103 Principles of Food and Resource Economics

Module 1: Guiding principles of economics

Guiding principles of economics

  1. Choices are necessary because resources are scarce

(In other words, people face trade-offs)

Think about this: what resources do you have?

And what resources does Elon Musk have?

And our society?

2. The true cost of something is its opportunity cost

What is the cost of a UF men’s basketball ticket?

And what is the cost of attending UF?

3. People respond to incentives

And there’s this:

And there’s this:

And this:

What incentive does this create?

4. Decisions are made at the margin

Marginal decision-making:

We stop iff MB = MC

5. Trade can make everyone better off

6. Markets move towards equilibrium

Oil in Aruba

Oil in Aruba

7. Resources should be used efficiently to achieve societal goals

K-ville again

Is this an efficient way to allocate tickets? Equitable?

8. (Free) markets are the “best” way to (organize) economic activity

In other words, market transactions lead to efficient (but not necessarily equitable) outcomes

Scarcity

Imagine that you manage to get into the Taylor Swift concert and had a great time. You came out of the stadium ready to go home. It is in the middle of the night, public transit has all shut down. And it is raining cats and dogs outside.

You desperately look for a cab, as do everybody else coming out of the Stadium. You wait, and wait, and wait, for an hour. No taxi comes to pick you up.

You open your Uber app on the phone. There is a surge pricing of 5 times here at the Stadium. You clicked the agree button, and 5 minutes later, an Uber comes to your rescue.

In-class Exercise #1: Uber’s Surge Pricing

  1. What incentives do surging pricing create for the passengers? For the cab drivers?
  2. Who is better off? And who is worse off?
  3. What will happen if the city of Jacksonville passed a rule capping the maximum surge pricing to be 1.5X of normal fare?

9. When markets don’t achieve efficiency, government intervention can improve efficiency.

Market failure: situations when markets do not achieve efficient outcomes

Sources of market failure:

(Note: this problem is covered extensively AEB 2451: Economics of Resource Use / AEB 3450: Intro to Natural Resource and Environmental Econ)

Macroeconomic Principles

  1. One person’s spending is another person’s income
  2. Overall spending sometimes gets out of line with an economies’ productive capacity
  3. Government policies can change spending